Fed chief keeps March move on the table The Federal Reserve is likely to raise rates at upcoming meetings, Fed Chairwoman Janet Yellen said Tuesday, leaving open the possibility of a move as soon as the next policy meeting in March. "At our upcoming meetings, the Fed will evaluate whether employment and inflation are continuing to evolve in line with...expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," Yellen said in testimony to the Senate Banking Committee (https://www.federalreserve.gov/newsevents/testimony/yellen20170214a.htm). At upcoming meetings, Yellen said, the Fed would look at incoming data to see if the labor market continues to strengthen and inflation is moving up to the central bank's 2% target, she said. See live blog of Yellen's testimony (http://blogs.marketwatch.com/capitolreport/2017/02/14/feds-yellen-testifies-to-senate-live-blog-and-video/) Ward McCarthy , chief financial economist at Jefferies , said the "translation" of Yellen's testimony was: "we do not know yet when we will raise rates next, the decision is data dependent." Michael Gregory , deputy chief economist at BMO Capital Markets , said the next rate hikes "seems like May or June, most likely June." He said it was key that Yellen said upcoming "meetings" not meeting. " March 15 is a mere one month and one day away, which seems to be a short window to amass enough evidence" for a rate hike, he said. The dollar rose and bond yields increased, signifying the market took a hawkish interpretation of her comments. Bank stocks including J.P. Morgan Chase (JPM) also rose on hopes for improving margins as rates increase. Adding to the sense that a rate hike could come before too long, Yellen reiterated there is a risk of the Fed waiting too long to raise rates. She said it would be "unwise" to delay because it might require the central bank to eventually raise rates rapidly. She said it was "reassuring" that market-based measures of inflation compensation remain low but are no longer at "very low levels." (http://projects.marketwatch.com/economic-data/?series=T5YIFR&theme=white&hed=5-year%2C+5-year+forward+inflation+expectation+rate&dek=Not+seasonally+adjusted&source=Federal+Reserve+Bank+of+St.+Louis+via+FRED&source_link=https%3A%2F%2Fresearch.stlouisfed.org%2Ffred2%2Fseries%2FT5YIFR&drad=on&start=2011-02-01&end=2017-02-01&predictions=none) She defended the Fed's policy to hold its balance sheet steady at $4.5 trillion , saying this "has helped maintain accommodative financial conditions." The Fed chairwoman, whose term will run out in a year, stressed that the outlook is uncertain and interest-rate policy was not on any preset course. It was "too early to know" what fiscal policy changes will be put in place by the Republican Congress or "how their economic effects will unfold," she said. While stressing it was not her intention to opine on fiscal policy plans, Yellen laid out two criteria. She said that it was important that any tax and spending plan would end up putting the U.S. budget on a "sustainable trajectory." And she said it was important to focus on measures to improve worker productivity because this would boost economic growth and raise living standards.
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